Thursday, January 10, 2013

SME owners or future owners of small businesses have few sources of funding when they start their first rounds. Donors such as the World Bank have strict lending criteria that they often will not pay the amount required by the contractor to finance their start. Even companies financing companies are reluctant to lend money to start-ups such as the risk of failure is high and the new company has no tangible assets a loan may be secured against.

One of the easiest sources to finance a new business credit card. There are many stories of entrepreneurs who financed their start-up of credit cards. Credit cards are easy to find (applications are often mailed) and abundant across a number of different financial institutions.And spending on common these cards will even cause credit card companies to increase spending limits on their cards!

Sure, credit cards are a very dangerous tool if funding costs getting out of control and the owner can not pay off its debts in a timely manner. New credit card offers generally have a low introductory rate, but six months later, a much higher rate of interest can kick it borrowed money making extremely expensive.

Regardless of the danger, however, there have been many entrepreneurs who started their financing small businesses with their credit cards. Most of these people would then move on to more traditional financing options (banks), once they had experienced cash flow. But in the startup phase, credit cards can be an instrumental option for financing a new business when other sources of money are very tight.